Why Investors Should Move Off of Facebook
The Washington Post uncovered Facebook’s relationship with a Republican consulting firm.
Dangerous trends and challenge that were believed to have started on TikTok were created by Facebook’s consulting firm
Facebook’s actions continue to drive younger audiences away from the platform.
Investor should consider moving on from Facebook as well
To close out last week, the public was treated to another story of questionable decisions made at Meta ($FB), formerly known as Facebook. The Washington Post reported that Facebook hired a republican consulting firm to conduct a smear campaign against one of the social media giant’s competitors.
Internal emails from the consulting firm Targeted Victory revealed that some of the dangerous and tasteless trends that parents, teachers, and politicians have accused TikTok of incubating and promoting, were thought of by Targeted Victory, and started on Facebook, not TikTok.
One of the trends was the “Slap a Teacher Challenge” that popped up last October, and encouraged students to calmly approach teachers, assault them, and then run away while catching it on camera. The emails received by The Washington Post revealed that the challenge was a Targeted Victory campaign. An article written by The Insider, previously linked the challenge to Facebook.
In recent years Facebook has struggled to gain younger users, and the smear campaign was an effort to turn parents and politicians in the U.S. against the China based TikTok. Facebook’s usage by teenagers has declined by 13 percent since 2019, and is projected to drop 45 percent over the next two years. A 4 percent decline in usage is expected from adults between the ages of 20 and 30 years old.
TikTok, founded in China in 2016, and launched internationally in 2017 was the seventh most downloaded app in the 2010s. Generation Z, - born in the mid to late 90s through the early 2010s - accounts for 47% of TikTok’s active users in the United States. According to Facebook’s own research, teens spend 2-3x more time on TikTok than on Meta’s Instagram app. The Business of Apps estimates that TikTok’s revenue in 2021 was $4.6 billion. Facebook’s 2021 revenue came in at $118 billion.
Why Facebook Should Be Done
Launching negative campaigns towards the competition is standard in capitalism, and if Meta’s campaign was Facebook good, TikTok bad, I wouldn’t have a problem with it. But when a negative campaign against the competition uses innocent people - teachers - as collateral damage, then there is a big problem.
Facebook is accustomed to being in the middle of big problems. Since 2017 the Facebook platform has been accused of being a weapon used to manipulate U.S. elections. It was blind to the actions of an outside agency, who used the platform to harvest Facebook user data to generate psychological profiles. It’s been the home and distributor of news stories that stoke rage, while lacking facts. It’s been accused of giving hate speech a place to live, and most recently, the company made the news after former Facebook employee, Frances Haugen, accused Facebook of being harmful to kids, inciting division, and undermining democracy in order to achieve revenue growth. And growth is something Facebook excels at, no matter how bad the headlines are about the company.
The Cambridge Analytica story, which uncovered how a third party used Facebook to harvest user data unknowingly, led to a call for people to delete Facebook. The social movement did little to hurt Facebook. Facebook’s worldwide daily active users grew in the quarter following the story’s release, from 1.44 billion to 1.47 billion. Facebook ended 2018 with $55.8 billion in revenue, a 37% increase from the year before. Net profit in 2018 also increased, jumping from $15.9 billion the previous year to $22.1 billion.
In the summer of 2020, a coalition that included the NAACP and the Anti-Defamation League started the #StopHateForProfit campaign. The campaign urged companies to stop advertising with Facebook until the company changed how it handled hate speech on the platform. The #StopHateForProfit movement kicked off at the tail end of Q2 2020, but the campaign did little to stop the Facebook train. Advertising revenue in Q3 2020 grew 22% year-over-year, and 18% quarter-over-quarter. Daily active users grew 12% year-over-year during Q3 2020, as did monthly active users. Facebook’s stock price traded near $240 per share before the #StopHateForProfit campaign, and dropped below $220 a share when big companies like Ben & Jerry’s, Coca-Cola, and Hershey’s pulled their advertisements. The stock price eventually bounced back and hit $300 a share two months later. Even with major companies suspending their Facebook ads, investors didn’t see a brand in crisis, they saw a stock on sale. Facebook has navigated through issue after issue like a world class captain, but the Targeted Victory campaign against TikTok could be the iceberg that sinks the ship.
We’ve Seen This Before
Facebook is dealing with a crisis, and I don’t use that word to exaggerate a point. The company’s inability to attract younger users is a crisis, and it’s gone about managing the crisis in a terrible way.
Facebook’s own studies revealed that young people view the platform as boring and outdated, and the response by the company’s management wasn’t to introduce something exciting to the platform or update the platform, its response was to slander the competition while inciting violence.
Facebook’s management is desperately trying to get back to the past, when it was comfortably on top of the social media food chain, because Twitter ($TWTR) and Snap ($SNAP) couldn’t get it together. I’ve seen what happens to companies who fail to look forward. Their brands become boring, they borrow from the competition instead of innovating, and their stock prices trade sideways for years.
In the early 2000s Microsoft and Intel, two high fliers in the 90s failed to look forward, and so they missed the move from desktops to mobile. From the start of 1990 to the end of 1999 Microsoft’s stock increased by over 9500 percent and Intel’s stock increased nearly 4500 percent. Between 2001 and the end of 2011, Microsoft’s stock traded mostly sideways, gaining only 20% over the decade. Intel ’s stock lost nearly 20% of its value over the same time span. Both companies got old in the early 2000s. Microsoft and Intel were strong enough brands to survive the economic slowdown that followed the burst of the dotcom bubble in the early 2000s, but they weren’t young enough in their thinking to innovate for the next phase of computing.
This is Facebook, old, out of touch and unable to innovate. Facebook is no longer the young tech growth story it used to be, now it’s cable television in the 2010s, and TikTok is Netflix.
Why Investors Should Flee
The Washington Post’s article shows that Facebook’s management lacks focus, lacks imagination, has no moral compass, and is out of touch. The time spent attempting to set TikTok up for failure could’ve been used to set Meta up for success. Instead of cloning features made popular by other social media platforms it could have tried to come up with some entertaining features of its own, and instead of urging kids to slap teachers and share it on TikTok, why not promote students showcasing and complimenting great teachers and sharing that on Facebook?
Investors should consider how bad Facebook’s line of thinking is. A company that is having a difficult time attracting teenagers to its platform, gave the thumbs-up to a campaign by its consulting firm that encouraged teenagers to slap their teachers. An action that could have injured teachers and put teenagers in serious trouble. That’s not a strategy that has the best interest of young people in mind.
Parents should consider leaving the platform as well. Parenting teenagers is difficult enough, without one of the world’s largest tech companies gaslighting kids to do stupid shit. We’ve already shown our young, and our teachers, that the National Rifle Association’s money is more important than their safety, we shouldn’t double down on that position because of Facebook’s influence.
Teachers, schools, and school boards should also consider abandoning the platform. Why support a company that is willing to risk a teacher’s safety and a student’s future just to disrupt their competition? Instead of Facebook, consider using Discord to disseminate important information.
Facebook Being Facebook Ruined Facebook
While I’d be okay with Facebook being canceled forever and done with, I know it’s not completely done, and the stock isn’t going to zero. The platform has too many adults who find comfort in it, and rely on it for news and connection. Also, there are profits to be made off of older adults with steady incomes. But Facebook as an investment won’t be like it was. The young bring energy, and energy is contagious, and this is what draws people to TikTok, and it's what brought people to Facebook 15 years ago. But over the years, Facebook chose toxicity over fun, silly, positive energy, and now it’s paying the price for that decision. Facebook being Facebook, has ruined Facebook. Go Mark!